USDINR Ideas - Participating Forward

USDINR Ideas - Participating Forward

Ritesh Victor
16 Jul 2019 05:28 PM
Dollar exporters are a worried lot these days. Beyond a slowdown of orders, the domestic currency is appreciating – pressurizing not only product prices but also competitiveness (unlike the Indian Rupee, other Asian currencies have either weakened or remained stable). At a time when the rupee is around the strongest levels in the last one year, it certainly makes a lot of prudent sense for dollar importers to hedge. Short term (1-2-3 months) forward premiums are low and hence forward rates are quite attractive. Use vanilla options too for diversifying risk – since spot volatility is low, option cost is quite minimal too. For exporters, locking in forward rates at such a low dollar spot is quite perilous. Even though long term forward premiums are better, forward rates doesn’t look that great. Vanilla options will work out best. For those who are averse to paying option premium, a Participating Forward is a feasible alternative.

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